NEW YORK, Sept. 30, 2020 /PRNewswire/ -- BGC Partners, Inc.
(NASDAQ: BGCP) ("BGC Partners" or "BGC" or the "Company"), a
leading global brokerage and financial technology company, today
announced that it has updated its outlook for the quarter ending
September 30, 2020.
Updated Outlook
Against a backdrop of lower industry
volumes across rates, foreign exchange, and credit,1
BGC's revenue and pre-tax Adjusted Earnings for the third quarter
of 2020 are now expected to be between the mid-point and the
low-end of the range of its previously stated outlook. The
Company's outlook was contained in BGC's financial results press
release issued on July 30, 2020,
which can be found at http://ir.bgcpartners.com.
Non-GAAP Financial Measures
This document contains
non-GAAP financial measures that differ from the most directly
comparable measures calculated and presented in accordance with
Generally Accepted Accounting Principles in the United States ("GAAP"). Non-GAAP financial
measures used by the Company include "Adjusted Earnings before
noncontrolling interests and taxes", which is used interchangeably
with "pre-tax Adjusted Earnings"; "Post-tax Adjusted Earnings to
fully diluted shareholders", which is used interchangeably with
"post-tax Adjusted Earnings"; "Adjusted EBITDA"; and "Liquidity".
The definitions of these terms are below.
Adjusted Earnings Defined
BGC uses non-GAAP financial
measures, including "Adjusted Earnings before noncontrolling
interests and taxes" and "Post-tax Adjusted Earnings to fully
diluted shareholders", which are supplemental measures of operating
results used by management to evaluate the financial performance of
the Company and its consolidated subsidiaries. BGC believes that
Adjusted Earnings best reflect the operating earnings generated by
the Company on a consolidated basis and are the earnings which
management considers when managing its business.
As compared with "Income (loss) from operations before income
taxes" and "Net income (loss) for fully diluted shares", both
prepared in accordance with GAAP, Adjusted Earnings calculations
primarily exclude certain non-cash items and other expenses that
generally do not involve the receipt or outlay of cash by the
Company and/or which do not dilute existing stockholders. In
addition, Adjusted Earnings calculations exclude certain gains and
charges that management believes do not best reflect the ordinary
results of BGC. Adjusted Earnings is calculated by taking the most
comparable GAAP measures and adjusting for certain items with
respect to compensation expenses, non-compensation expenses, and
other income, as discussed below.
Calculations of Compensation Adjustments for Adjusted
Earnings and Adjusted EBITDA
Treatment of Equity-Based Compensation Line Item for
Adjusted Earnings and Adjusted EBITDA
The Company's
Adjusted Earnings and Adjusted EBITDA measures exclude all GAAP
charges included in the line item "Equity-based compensation and
allocations of net income to limited partnership units and FPUs"
(or "equity-based compensation" for purposes of defining the
Company's non-GAAP results) as recorded on the Company's GAAP
Consolidated Statements of Operations and GAAP Consolidated
Statements of Cash Flows. These GAAP equity-based compensation
charges reflect the following items:
* Charges with respect to grants of exchangeability, which
reflect the right of holders of limited partnership units with no
capital accounts, such as LPUs and PSUs, to exchange these units
into shares of common stock, or into partnership units with capital
accounts, such as HDUs, as well as cash paid with respect to taxes
withheld or expected to be owed by the unit holder upon such
exchange. The withholding taxes related to the exchange of certain
non-exchangeable units without a capital account into either common
shares or units with a capital account may be funded by the
redemption of preferred units such as PPSUs.
* Charges with respect to preferred units. Any preferred units
would not be included in the Company's fully diluted share count
because they cannot be made exchangeable into shares of common
stock and are entitled only to a fixed distribution. Preferred
units are granted in connection with the grant of certain limited
partnership units that may be granted exchangeability or redeemed
in connection with the grant of shares of common stock at ratios
designed to cover any withholding taxes expected to be paid. This
is an alternative to the common practice among public companies of
issuing the gross amount of shares to employees, subject to
cashless withholding of shares, to pay applicable withholding
taxes.
* GAAP equity-based compensation charges with respect to the grant
of an offsetting amount of common stock or partnership units with
capital accounts in connection with the redemption of
non-exchangeable units, including PSUs and LPUs.
* Charges related to amortization of RSUs and limited partnership
units.
* Charges related to grants of equity awards, including common
stock or partnership units with capital accounts.
* Allocations of net income to limited partnership units and FPUs.
Such allocations represent the pro-rata portion of post-tax GAAP
earnings available to such unit holders.
The amounts of certain quarterly equity-based
compensation charges are based upon the Company's estimate of
such expected charges during the annual period, as described
further below under "Methodology for Calculating Adjusted Earnings
Taxes."
Virtually all of BGC's key executives and producers have equity
or partnership stakes in the Company and its subsidiaries and
generally receive deferred equity or limited partnership units as
part of their compensation. A significant percentage of BGC's fully
diluted shares are owned by its executives, partners and employees.
The Company issues limited partnership units as well as other forms
of equity-based compensation, including grants of exchangeability
into shares of common stock, to provide liquidity to its employees,
to align the interests of its employees and management with those
of common stockholders, to help motivate and retain key employees,
and to encourage a collaborative culture that drives cross-selling
and revenue growth.
All share equivalents that are part of the Company's
equity-based compensation program, including REUs, PSUs, LPUs,
HDUs, and other units that may be made exchangeable into
common stock, as well as RSUs (which are recorded using the
treasury stock method), are included in the fully diluted share
count when issued or at the beginning of the subsequent quarter
after the date of grant. Generally, limited partnership units other
than preferred units are expected to be paid a pro-rata
distribution based on BGC's calculation of Adjusted Earnings per
fully diluted share. However, out of an abundance of caution and in
order to strengthen the Company's balance sheet due the uncertain
macroeconomic conditions with respect to the COVID-19 pandemic, BGC
Holdings, L.P. has reduced its distributions of income from the
operations of BGC's businesses to its partners.
Compensation charges are also adjusted for certain other cash
and non-cash items, including those related to the amortization of
GFI employee forgivable loans granted prior to the closing of the
January 11, 2016 back-end merger with
GFI.
Certain Other Compensation-Related Adjustments for
Adjusted Earnings
BGC also excludes various other GAAP
items that management views as not reflective of the Company's
underlying performance in a given period from its calculation of
Adjusted Earnings. These may include compensation-related items
with respect to cost-saving initiatives, such as severance charges
incurred in connection with headcount reductions as part of broad
restructuring and/or cost savings plans.
Calculation of Non-Compensation Adjustments for Adjusted
Earnings
Adjusted Earnings calculations may also
exclude items such as:
* Non-cash GAAP charges related to the amortization of
intangibles with respect to acquisitions;
* Acquisition related costs;
* Certain rent charges;
* Non-cash GAAP asset impairment charges; and
* Various other GAAP items that management views as not reflective
of the Company's underlying performance in a given period,
including non-compensation-related charges incurred as part of
broad restructuring and/or cost savings plans. Such GAAP items may
include charges for exiting leases and/or other long-term contracts
as part of cost-saving initiatives, as well as non-cash impairment
charges related to assets, goodwill and/or intangibles created from
acquisitions.
Calculation of Adjustments for Other (income) losses for
Adjusted Earnings
Adjusted Earnings calculations also
exclude certain other non-cash, non-dilutive, and/or non-economic
items, which may, in some periods, include:
* Gains or losses on divestitures;
* Fair value adjustment of investments;
* Certain other GAAP items, including gains or losses related to
BGC's investments accounted for under the equity method; and
* Any unusual, one-time, non-ordinary, or non-recurring gains or
losses.
Methodology for Calculating Adjusted Earnings Taxes
Although Adjusted Earnings are calculated on a pre-tax basis, BGC
also reports post-tax Adjusted Earnings to fully diluted
shareholders. The Company defines post-tax Adjusted Earnings to
fully diluted shareholders as pre-tax Adjusted Earnings reduced by
the non-GAAP tax provision described below and net income (loss)
attributable to noncontrolling interest for Adjusted Earnings.
The Company calculates its tax provision for post-tax Adjusted
Earnings using an annual estimate similar to how it accounts for
its income tax provision under GAAP. To calculate the quarterly tax
provision under GAAP, BGC estimates its full fiscal year GAAP
income (loss) from operations before income taxes and
noncontrolling interests in subsidiaries and the expected
inclusions and deductions for income tax purposes, including
expected equity-based compensation during the annual period. The
resulting annualized tax rate is applied to BGC's quarterly GAAP
income (loss) from operations before income taxes and
noncontrolling interests in subsidiaries. At the end of the annual
period, the Company updates its estimate to reflect the actual tax
amounts owed for the period.
To determine the non-GAAP tax provision, BGC first adjusts
pre-tax Adjusted Earnings by recognizing any, and only, amounts for
which a tax deduction applies under applicable law. The amounts
include charges with respect to equity-based compensation; certain
charges related to employee loan forgiveness; certain net operating
loss carryforwards when taken for statutory purposes; and certain
charges related to tax goodwill amortization. These adjustments may
also reflect timing and measurement differences, including
treatment of employee loans; changes in the value of units between
the dates of grants of exchangeability and the date of actual unit
exchange; variations in the value of certain deferred tax assets;
and liabilities and the different timing of permitted deductions
for tax under GAAP and statutory tax requirements.
After application of these adjustments, the result is the
Company's taxable income for its pre-tax Adjusted Earnings, to
which BGC then applies the statutory tax rates to determine its
non-GAAP tax provision. BGC views the effective tax rate on pre-tax
Adjusted Earnings as equal to the amount of its non-GAAP tax
provision divided by the amount of pre-tax Adjusted Earnings.
Generally, the most significant factor affecting this non-GAAP
tax provision is the amount of charges relating to equity-based
compensation. Because the charges relating to equity-based
compensation are deductible in accordance with applicable tax laws,
increases in such charges have the effect of lowering the Company's
non-GAAP effective tax rate and thereby increasing its post-tax
Adjusted Earnings.
BGC incurs income tax expenses based on the location, legal
structure and jurisdictional taxing authorities of each of its
subsidiaries. Certain of the Company's entities are taxed as U.S.
partnerships and are subject to the Unincorporated Business Tax
("UBT") in New York City. Any U.S.
federal and state income tax liability or benefit related to the
partnership income or loss, with the exception of UBT, rests with
the unit holders rather than with the partnership entity. The
Company's consolidated financial statements include U.S. federal,
state, and local income taxes on the Company's allocable share of
the U.S. results of operations. Outside of the U.S., BGC is
expected to operate principally through subsidiary corporations
subject to local income taxes. For these reasons, taxes for
Adjusted Earnings are expected to be presented to show the tax
provision the consolidated Company would expect to pay if 100
percent of earnings were taxed at global corporate rates.
Calculations of Pre- and Post-Tax Adjusted Earnings per
Share
BGC's pre- and post-tax Adjusted Earnings per share
calculations assume either that:
* The fully diluted share count includes the shares related to
any dilutive instruments, but excludes the associated expense, net
of tax, when the impact would be dilutive; or
* The fully diluted share count excludes the shares related to
these instruments, but includes the associated expense, net of
tax.
The share count for Adjusted Earnings excludes certain shares
and share equivalents expected to be issued in future periods but
not yet eligible to receive dividends and/or distributions. Each
quarter, the dividend payable to BGC's stockholders, if any, is
expected to be determined by the Company's Board of Directors with
reference to a number of factors, including post-tax Adjusted
Earnings per share. BGC may also pay a pro-rata distribution of net
income to limited partnership units, as well as to Cantor for its
noncontrolling interest. The amount of this net income, and
therefore of these payments per unit, would be determined using the
above definition of Adjusted Earnings per share on a pre-tax
basis.
The declaration, payment, timing, and amount of any future
dividends payable by the Company will be at the discretion of its
Board of Directors using the fully diluted share count. For more
information on any share count adjustments, see the table titled
"Fully Diluted Weighted-Average Share Count under GAAP and for
Adjusted Earnings".
Management Rationale for Using Adjusted Earnings
BGC's calculation of Adjusted Earnings excludes the items discussed
above because they are either non-cash in nature, because the
anticipated benefits from the expenditures are not expected to be
fully realized until future periods, or because the Company views
results excluding these items as a better reflection of the
underlying performance of BGC's ongoing operations. Management uses
Adjusted Earnings in part to help it evaluate, among other things,
the overall performance of the Company's business, to make
decisions with respect to the Company's operations, and to
determine the amount of dividends payable to common stockholders
and distributions payable to holders of limited partnership units.
Dividends payable to common stockholders and distributions payable
to holders of limited partnership units are included within
"Dividends to stockholders" and "Earnings distributions to limited
partnership interests and noncontrolling interests," respectively,
in our unaudited, condensed, consolidated statements of cash
flows.
The term "Adjusted Earnings" should not be considered in
isolation or as an alternative to GAAP net income (loss). The
Company views Adjusted Earnings as a metric that is not indicative
of liquidity, or the cash available to fund its operations, but
rather as a performance measure. Pre- and post-tax Adjusted
Earnings, as well as related measures, are not intended to replace
the Company's presentation of its GAAP financial results. However,
management believes that these measures help provide investors with
a clearer understanding of BGC's financial performance and offer
useful information to both management and investors regarding
certain financial and business trends related to the Company's
financial condition and results of operations. Management believes
that the GAAP and Adjusted Earnings measures of financial
performance should be considered together.
For more information regarding Adjusted Earnings, see the
sections of this document and/or the Company's most recent
financial results press release titled "Reconciliation of GAAP
Income (Loss) from Operations before Income Taxes to Adjusted
Earnings and GAAP Fully Diluted EPS to Post-Tax Adjusted EPS",
including the related footnotes, for details about how BGC's
non-GAAP results are reconciled to those under GAAP.
Adjusted EBITDA Defined
BGC also provides an
additional non-GAAP financial performance measure, "Adjusted
EBITDA", which it defines as GAAP "Net income (loss) available to
common stockholders", adjusted to add back the following items:
* Provision (benefit) for income taxes;
* Net income (loss) attributable to noncontrolling interest in
subsidiaries;
* Interest expense;
* Fixed asset depreciation and intangible asset amortization;
* Equity-based compensation and allocations of net income to
limited partnership units and FPUs;
* Impairment of long-lived assets;
* (Gains) losses on equity method investments; and
* Certain other non-cash GAAP items, such as non-cash charges of
amortized rents incurred by the Company for its new UK based
headquarters.
The Company's management believes that its Adjusted EBITDA
measure is useful in evaluating BGC's operating performance,
because the calculation of this measure generally eliminates the
effects of financing and income taxes and the accounting effects of
capital spending and acquisitions, which would include impairment
charges of goodwill and intangibles created from acquisitions. Such
items may vary for different companies for reasons unrelated to
overall operating performance. As a result, the Company's
management uses this measure to evaluate operating performance and
for other discretionary purposes. BGC believes that Adjusted EBITDA
is useful to investors to assist them in getting a more complete
picture of the Company's financial results and operations.
Since BGC's Adjusted EBITDA is not a recognized measurement
under GAAP, investors should use this measure in addition to GAAP
measures of net income when analyzing BGC's operating performance.
Because not all companies use identical EBITDA calculations, the
Company's presentation of Adjusted EBITDA may not be comparable to
similarly titled measures of other companies. Furthermore, Adjusted
EBITDA is not intended to be a measure of free cash flow or GAAP
cash flow from operations because the Company's Adjusted EBITDA
does not consider certain cash requirements, such as tax and debt
service payments.
For more information regarding Adjusted EBITDA, see the section
of this document and/or the Company's most recent financial results
press release titled "Reconciliation of GAAP Net Income (Loss)
Available to Common Stockholders to Adjusted EBITDA", including the
footnotes to the same, for details about how BGC's non-GAAP results
are reconciled to those under GAAP.
Timing of Outlook for Certain GAAP and Non-GAAP
Items
BGC anticipates providing forward-looking guidance for
GAAP revenues and for certain non-GAAP measures from time to time.
However, the Company does not anticipate providing an outlook for
other GAAP results. This is because certain GAAP items, which are
excluded from Adjusted Earnings and/or Adjusted EBITDA, are
difficult to forecast with precision before the end of each period.
The Company therefore believes that it is not possible for it to
have the required information necessary to forecast GAAP results or
to quantitatively reconcile GAAP forecasts to non-GAAP forecasts
with sufficient precision without unreasonable efforts. For the
same reasons, the Company is unable to address the probable
significance of the unavailable information. The relevant items
that are difficult to predict on a quarterly and/or annual basis
with precision and may materially impact the Company's GAAP results
include, but are not limited, to the following:
* Certain equity-based compensation charges that may be
determined at the discretion of management throughout and up to the
period-end;
* Unusual, one-time, non-ordinary, or non-recurring items;
* The impact of gains or losses on certain marketable securities,
as well as any gains or losses related to associated mark-to-
market movements and/or hedging. These items are calculated using
period-end closing prices;
* Non-cash asset impairment charges, which are calculated and
analyzed based on the period-end values of the underlying assets.
These amounts may not be known until after period-end;
* Acquisitions, dispositions and/or resolutions of litigation,
which are fluid and unpredictable in nature.
Liquidity Defined
BGC may also use a non-GAAP measure
called "liquidity". The Company considers liquidity to be comprised
of the sum of cash and cash equivalents, reverse repurchase
agreements (if any), securities owned, and marketable securities,
less securities lent out in securities loaned transactions and
repurchase agreements (if any). The Company considers liquidity to
be an important metric for determining the amount of cash that is
available or that could be readily available to the Company on
short notice.
For more information regarding Liquidity, see the section of
this document and/or the Company's most recent financial results
press release titled "Liquidity Analysis", including any footnotes
to the same, for details about how BGC's non-GAAP results are
reconciled to those under GAAP.
About BGC Partners, Inc.
BGC Partners is a leading
global brokerage and financial technology company. BGC specializes
in the brokerage of a broad range of products, including fixed
income (rates and credit), foreign exchange, equities, energy and
commodities, shipping, insurance, and futures. BGC also provides a
wide variety of services, including trade execution, brokerage,
clearing, trade compression, post-trade, information, and other
back-office services to a broad range of financial and
non-financial institutions. Through brands including Fenics, BGC
Trader, Capitalab, Lucera, and Fenics Market Data, BGC offers
financial technology solutions, market data, and analytics related
to numerous financial instruments and markets. BGC, BGC Trader,
GFI, Fenics, Fenics Market Data, Capitalab, and Lucera are
trademarks/service marks and/or registered trademarks/service marks
of BGC Partners, Inc. and/or its affiliates.
BGC's customers include many of the world's largest banks,
broker-dealers, investment banks, trading firms, hedge funds,
governments, corporations, and investment firms. BGC's Class A
common stock trades on the NASDAQ Global Select Market under the
ticker symbol "BGCP". BGC Partners is led by Chairman of the Board
and Chief Executive Officer Howard W.
Lutnick. For more information, please visit
http://www.bgcpartners.com. You can also follow BGC at
https://twitter.com/bgcpartners,
https://www.linkedin.com/company/bgc-partners and/or
http://ir.bgcpartners.com/Investors/default.aspx.
Discussion of Forward-Looking Statements about BGC
Statements in this document regarding BGC that are not historical
facts are "forward-looking statements" that involve risks and
uncertainties, which could cause actual results to differ from
those contained in the forward-looking statements. These include
statements about the effects of the COVID-19 pandemic on the
Company's business, results, financial position, liquidity and
outlook, which may constitute forward-looking statements and are
subject to the risk that the actual impact may differ, possibly
materially, from what is currently expected. Except as required by
law, BGC undertakes no obligation to update any forward-looking
statements. For a discussion of additional risks and uncertainties,
which could cause actual results to differ from those contained in
the forward-looking statements, see BGC's Securities and Exchange
Commission filings, including, but not limited to, the risk factors
and Special Note on Forward-Looking Information set forth in these
filings and any updates to such risk factors and Special Note on
Forward-Looking Information contained in subsequent reports on Form
10-K, Form 10-Q or Form 8-K.
Media Contact:
Karen
Laureano-Rikardsen
+1 212-829-4975
Investor Contacts:
Jason Chryssicas or Grant Filer
+1 212-610-2426
1 Industry rates volumes include CME interest
rate futures and options, Deutsche Börse (Eurex) European interest
rate derivatives, FIA SEF
non-forward rate agreement IRS, ICE short-term and medium & L-T
interest rates, ISDA interest rate derivatives, LSE's MTS Cash,
MarketAxess U.S. government bonds (which represents U.S. Treasury
volumes on LiquidityEdge), Nasdaq U.S. fixed income, NEX (CME) U.S.
Treasuries, and Tradeweb U.S. government bonds. Industry foreign
exchange volumes include CBOE Hotspot (spot) FX, CLS forward, swap,
and spot FX, CME FX futures and options, Deutsche Börse FX (360T),
Euronext FX (Fastmatch), FIA SEF FX products, NEX (CME) EBS spot
FX, and Refinitiv FX spot volume and other volume. Industry credit
volumes include FIA CDS and options, ISDA credit derivatives,
MarketAxess total credit, primary dealer U.S. corporate bonds
(source: Bloomberg), and Tradeweb total credit.
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SOURCE BGC Partners, Inc.